A battered child care industry’s latest challenge? Competing for 4-year-olds.

Gingerbread Kids Academy owner Tim Kaminski can easily tick off examples of how tough it is to keep a child care business open more than four years after the pandemic hit.

Before COVID-19 came to the United States in 2020, Kaminski had 45 employees and averaged up to 130 children enrolled in each of his two child care centers and after school programs in Fort Bend County. Today, he can only sustain about half that: 70 kids and 22 staff members.

This year, the last of emergency COVID-19-related aid to child care providers that kept them up and running ends and many like Kaminski are returning to a very changed economy.

But even before the pandemic, Kaminski and other providers were bracing for another big blow to make its way to the state’s 16,000 child care providers, one delivered by the Texas Legislature in 2019 that for all its good intents — making public schools offer full day pre-kindergarten — is now capturing child care’s most profitable customer base: 3-and 4-year-olds.

“We pay school property taxes and we have them (schools) taking business away from us,” he said.

Compounding the challenges is the Texas Legislature has hesitated approving meaningful infusions of state dollars into child care. While lawmakers approved a way to allow certain child care centers a property tax exemption, the method is not widely used statewide.

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Meanwhile, more than 91,000 Texas children are on a state waitlist for subsidies to pay for child care, which can cost as much as a monthly home mortgage.

“The pandemic did not cause our child care crisis, it revealed our child care problem,” said Kim Kofron, senior director of education for Houston-based Children at Risk.

The rise of pre-K

Texas schools started offering half day of state-supported pre-K in 1984 to help ready low-income children for school. In 2019, Texas made it mandatory for public schools to offer a full day of pre-kindergarten, but the last-minute move caught child care advocates by surprise, Kaminski recalls, and providers like him immediately saw the threat to their own industry.

Less than a year after full-day pre-K passed, the COVID-19 pandemic hit, closing child care centers and homes, along with schools. So the competition between the two was slow to emerge.

By 2021, child care operators struggled to reopen, some closed entirely and those that remained were able to do so with emergency federal funding — $126,869 on average for centers and $17,678 for homes — which helped providers pay their own business mortgages or rent and staff salaries.

Overall, about one-third of Texas child care centers and homes closed at some point during the pandemic, according to an 11-state study by the Bipartisan Policy Center.

Last month, Kaminski and others detailed for the House Committee on International Relations and Economic Development how an already battered industry is now taking a state-inflicted second beating with pre-K.

“It was going to have a devastating impact on our businesses,” Kaminski, who also serves as president-elect of the Texas Licensed Child Care Association, said during the hearing.

Cheslee Escobedo, a senior vice president with KinderCare Learning companies, the nation’s largest provider of child care, told committee members how this one age group acts as an industry stabilizer. Older children help offset the higher staffing costs of caring for infants and young toddlers, the savings of which are passed on to families, she explained.

“So in a real world example, when 3-and 4-year-olds leave our care and enroll in a public school-run pre-K program, the impact to the overall child care center can be disastrous,” she said.

When child care centers like Kaminski’s charge $240 to $270 a week and his local school district in Fort Bend can charge $645 a month, it’s not hard to see how a major restructuring of child care funding is needed.

“Our school districts in our area are actively advertising to get kids to come in under their private pay tuition. That puts them in direct competition with us,” Kaminski told the committee chaired by state Rep. Angie Chen Button, R-Richardson.

While child care providers can partner with schools to offer pre-K classes, the lack of guidance and coordination from the state has made this doubly confusing for child care providers, who answer to as many as five state agencies when it comes to remaining licensed and in business.

“We were all left to our own devices,” Kaminski said.

Kofron concedes that the expansion of pre-K has hurt the child care industry but there doesn’t have to be winners and losers here.

“There’s enough children for all of us,” Kofron said, adding there are 2.3 million Texas children under the age of 6 and not enough slots in pre-K or child care to accommodate them all right now.

The Legislature has to prioritize funding for child care and pre-K, she said.

“We have done some very good incremental steps to improve our child care system,” Kofron said. “But what we haven’t used is the riches that Texas does have.”

Child care as a workforce priority

More clarity could be on the horizon when the Texas Legislature returns in January.

Earlier this year, both the Texas House and Senate made child care a priority this interim session, placing these charges in their respective economic development committees. This one move by both chambers has been a hopeful signal for child care providers and advocates.

“It’s more than a family issue, it’s more than an education issue,” said Button, the House committee’s chair, at last month’s hearing. “It is also a workforce development issue and it is also an economic development issue.”

Case in point? The number of low income children whose parents are waiting on state child care assistance is growing. As of August, there were 91,309 children waiting for subsidized child care, according to the Texas Workforce Commission.

Every child who is waiting, Escobedo says, has a parent who cannot return or enter the workforce because they cannot locate an affordable day care provider in today’s diminished industry.

Texas loses $9.3 billion annually because of child care breakdowns, according to the U.S. Chamber of Commerce Foundation.

“We know that the number of parents and caregivers able to consistently work, build self-sufficiency, pay taxes and stimulate the economy would increase exponentially,” Escobedo testified.

The economics of child care

By 2022, Texas parents paid on average $8,718 a year for center-based toddler care, according to the Annie E. Casey Foundation.

To help pay for that cost, parents can receive up to a $3,600 child care credit on their taxes.

For more immediate relief, Texas low-income families can turn to the Texas Workforce Commission subsidy program. The Child Care Services program is a $1.3 billion program where 96% of the funding comes from the federal government. But only child care providers who meet higher quality standards mandated by the workforce commission through its Texas Rising Star program can take those children.

Fewer than half – about 7,600 – of the state’s child care providers participate in Texas Rising Star.

The subsidy program paid part or all of the child care bill for 1.2 million Texas children.

While the waitlist fell dramatically during the pandemic when schools and child care centers were closed, it is now creeping back up. By the agency’s calculation, it would cost more than $861 million dollars to get that list down to zero.

That’s prompting Texas advocates and providers to push for a bigger state investment into child care, similar to what other Republican-led states have been doing in the past two years to help prepare for the end of federal COVID-19 aid.

Since 2023, Florida has used its own tax dollars, at least $100 million, to increase its version of the child care subsidy program. Alabama has added another $30 million to its child care rating and improvement program, replacing federal dollars that were previously used. Montana added another $7 million to expand its program and cover child care costs for another 700 children a year.

“I think we have to do it in Texas,” said David Feigen, director of early learning policy for Texans Care For Children, a nonprofit policy and advocacy group. “Getting people to rally behind investments, that will strengthen our programs.”

Has the state done enough?

Last year, the Texas Legislature put to voters a measure that allows cities and counties to offer a property tax exemption for land used by child care providers. Texas voters approved Proposition 2 but cities and counties have been slow to enact it.

A stumbling block to qualify for the property tax exemption: child care providers must be in the state’s Rising Star program — and — 20% of their children must be receiving state child care subsidies.

“Voters thought they were giving all providers property tax relief,” Kaminski said. “It’s a very small percentage.”

Kofron, who worked with lawmakers on the measure, admits its shortcomings but sees it as a framework to build on. “It was a way to get our foot in the door,” she said. “Was it perfect? No. But 65% of Texans voted for this.”

By late June, 14 counties and 11 cities approved the property tax exemption for low-income child care providers. Most of those are located in the state’s most populous areas: Austin, Dallas, Houston, Fort Worth, San Antonio and El Paso.

As counties and cities have been discussing whether to offer the property tax exemption for subsidized child care providers, it’s sparked more of a conversation among local leaders, who are asking what more they can do.

In Travis County, where only about 50 of the 300 child care providers would qualify for the new property exemption, leaders have approved a ballot initiative to infuse more money into child care. Voters in November will decide on a 2.5 cent property tax hike to raise $75 million to create more slots with existing providers for infants and toddlers, as well as children in after school care and employees who work non-traditional work hours.

The money would also fund incentives for employers to help with child care costs and address the long waitlist for state subsidies.

“We have 5,000 children on the waiting list locally,” said Cathy McHorse with United Way for Greater Austin. “That’s a 43% increase in the number of Travis County children on that waiting list since January. Right now, the expected wait time is two years.”

Local efforts like these are welcome but a larger investment from the state, as well as better coordination between schools and child care providers, are what advocates and providers want to see happen soon.

“It’s a culture change that needs to happen,” Feigen said. “We’re not lacking in demand.”

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This story was originally published by The Texas Tribune and distributed through a partnership with The Associated Press.